Thailand native Supap Kirtsaeng, a mathematics student at the University of Southern California, noticed that some of the college textbooks he used and sampled from his local college bookstore were selling at a lower price in Thailand than here in the United States. To him, it was the ideal arbitrage opportunity and allowed him to buy the books in Thailand and sell them in the U.S. It worked so well that it earned him around $1 million. The underlying publishers were Wiley and some other rivals, and the size of his revenue caught their attention.
Unfortunately for the enterprising student, Wiley sued him for copyright infringement and won the case. A judge in Manhattan on the Second U.S. Circuit Court of Appeals ordered Kirtsaeng to pay the company $600,000. The case is still being fought and has moved up the judicial ladder, with the U.S. Supreme Court to decide on the case soon. A 1998 Supreme Court decision has already made it possible for the original copyright owner to profit from the original sale of merchandise. This is now known as the first-sale doctrine and generally applies to U.S.-made products.

First-Sale Doctrine
The unfavorable ruling against Kirtsaeng represents a twist on the first-sale doctrine and was made with the conclusion that the doctrine doesn't apply to goods made overseas. Basically, anything produced outside of the U.S. doesn't fit the doctrine's original purposes. This has huge ramifications for the secondary marketplace.

If the Supreme Court rules against Kirtsaeng and in favor of Wiley, consumers who sell goods on eBay or any secondary marketplace could face copyright infringement charges for any products made overseas. This will lead to huge uncertainty. It is not always certain where goods are made, and products these days contain parts from around the world. It brings up many questions, such as if the final place of assembly counts as the country of origin, or if a certain percent of the raw materials are made overseas, for instance.

Firms including eBay, Costco and secondhand stores are clearly supporting Kirtsaeng and hope the first-sale doctrine is applied to all goods internationally. Other copyrighters that are subject to frequent piracy, including firms that own media rights to recorded music, film and related entertainment, would like to see more stringent restrictions on the sale of their goods in the secondary market. As such, they would like to see Wiley prevail.

Secondhand Marketplaces Paying Attention
If Wiley does win, consumers would have to get approval from the original manufacturer to sell a good online, to a secondhand store or another consumer. If manufacturers don't grant approval, it could grind these marketplaces to a halt. Manufacturers could also choose to be difficult and make the approval overly difficult or slow, which would also adversely impact the market.

On the flip side, going after their own customers could prove challenging. For starters, it would be extremely bad for business. It would also be cumbersome and nearly impossible to track down all potentially illicit activities. Legal fees could pile up, especially since copyrighting a product isn't that difficult, and it is doubtful whether pursuing legal action would be economical in many cases. Going after someone who sold a $10 DVD is hardly worth pursuing. The recorded music industry tried to go after consumers when illegal downloads of music took off on the Internet, but the strategy turned off customers and did little to dent illegal downloading activity.

The Bottom Line
A Supreme Court ruling in favor of Wiley would greatly complicate the buying and selling of used goods on the secondary market. No one is putting odds on which decision will be reached, but it seems logical that the first-sale doctrine should apply to both domestic and foreign items.

Photo Courtesy of cytech

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